Monday, March 10, 2014

Seth Klarman wondered when the meteoric rise in stock markets will rise. Howard Marks wondered that too. In Marks' latest memo, he answered by saying the markets will fall when it will. He does not know when, but knows that eventually, it will.

Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy – maybe not today or tomorrow, but someday. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.

Someday, professional investors will come to work and fear will have come to the markets and that fear will spread like wildfire. The news flow will be bad, and the markets will be tumbling.

My Guess

The markets played euphoria before. Well before 2008. Back in 1999-2001, batteries were all the rage. Batteries are once again in vogue. See PLUG. In the electric car market, look at Tesla.

Image source: Yahoo Finance

In social media, Facebook and Twitter get all the headlines, but Amazon and Yelp are the ones to watch.

In the end, all roads could lead from China. Demand for iron ore and energy dropped. Exports dropped 18% last month. China allowed its first debt default. This is unprecedented.